Sunday Independent Stupid Statement of the Week November 18, 2012

There’s no name on this piece, but it really does expose just how shameful the Sindo consensus on the economy really is. At the same time as they scream blue murder about the public sector, we get this article expressing great concern that action may be taken to ensure that the likes of Starbucks pays more than £8.6m in tax in the UK over 14 years.

If it had been either Starbucks or Amazon getting a hard time then one might have been inclined to write it off as nothing more than an isolated incident of no major concern to this country but two US multinationals getting the thumbscrew treatment on tax from major European countries in just one week is beginning to look suspiciously like a trend.

When the ECB bounced this country into a bailout two years ago there were fears that we would be forced to give up our low corporate tax rate in return for financial assistance. The Irish Government waged a fierce and apparently successful struggle to protect the 12.5 per cent rate despite our financial woes.

Unfortunately it appears that there is more than one way, many more ways, of skinning a cat. Last April the European Parliament voted in favour of having a “common consolidated corporate tax base”.

If the CCCTB ever became law companies operating within the EU would submit a single European tax return with their tax payments being allocated to individual member countries on the basis of the size of their business in each of those countries. This means that the CCCTB would be very, very bad news for Ireland if it ever came to pass.

Being questioned about paying low tax apparently represents the equivalent of medieval torture. I wonder what the Sindo will say if the MNCs ever actually have to pay even the headline tax rate of 12.5%. I’m too disgusted to read the rest of the paper.

I wonder what the Sindo will say if the MNCs ever actually have to pay even the headline tax rate of 12.5%

So what effective tax rates do such American MNCs in Ireland actually pay?

According to Keith Walsh, an analyst from the Office of the Revenue Commissioners:

The average (median) ETR for US companies for 2008 was 11.2 per cent. In 2007 the median ETR was 11.1 per cent. The median ETR in 2009 was 9.5 per cent but this figure is preliminary pending the full set of tax return data for 2009.

The ETR would not be expected to match the standard 12.5 per cent rate exactly due to variations in the taxable base and, in particular, some manufacturing profits are taxable at 10 per cent in Ireland (this rate is important for many US companies). But it is striking that the average for US companies is very close to the standard rate …

US Bureau of Economic Analysis puts it at 7.7%. Walsh’s paper states that it is higher than that, but Jim Stewart points out that he is dealing with the ‘median tax rate’ rather than the ‘average tax rate’. A low average tax rate may be the result of companies with huge profits paying low taxes. Stewart doubts the rate and does point out that there is some very interesting data on transfer pricing of patents (up until ’10 royalties on patents were tax free).

Richard Boyd Barrett, using Dept. of Finance, data calculated the average effective corporation tax rate for 2010 to be 6.5%. He did this using the tried and trusted method of taking the total taxable profits and dividing it by the tax paid.

RBBs numbers look like they apply across the board, as opposed to relating to MNCs, or specifically American MNCs as considered by Walsh.

As a statistical measure the median has acquired a bad name, as we\’re used to only hearing it invoked when the numbers are being gamed for consumption by the statistically naive. Hardly so in this case, but otherwise I\’m not sure why Walsh uses it.

There is nothing inherently wrong with using the median, but, like everything, it has a limitation.

However, distinctions between that and the average do imply that there are companies who are posting large profits and paying very small amounts of corporation tax, which is something Stewart acknowledged in his reply to Walsh’s paper.

I note that the Sindo has a piece claiming that in a “free vote” only 41 members of the Dail would oppose legislating for X. Now, obviously, any numbers prefaced by the words “according to Sunday Independent calculations” are to be taken with a couple of cellar’s worth of salt, but the breakdown they give is quite interesting.

In particular they claim that there are half as many hardcore lifers (ie opposed to legislation for X) in the Labour Dail group as there are in the Fine Gael one. If this is even close to the truth, it would certainly cast in a different light recent arguments from Labour liberals that the only problem is Fine Gael.